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MonJa’s Digital Banking and Lending Monthly Roundup – Why Subscribe?
Digital banking and lending are evolving rapidly. Recent fintech-banking partnerships and innovation in technology with the introduction of AI, ML and blockchain herald a new era in lending. Fintech’s are changing the competitive ecosystem, empowering lenders to process loans faster and smarter. In a world full of noise, understanding how the technologies and developments may impact your financial institution’s credit decisions and credit portfolio is of critical importance. With MonJa’s Digital Banking and Lending Monthly Roundup, it’s easy to stay up to date on what’s happening in the space. Get the latest updates, analysis and commentary on digital banking and lending segment!
9/24/21 CUs See 3 Important Wins in Defense Bill Passed by House (Credit Union Times)
National Defence Authorization Act for FY 2022 was passed by the House of Representatives with a bipartisan vote of 316-113. Due to their non-profit status, credit unions are permitted to operate rent-free on many military bases, as per the house bill. CUNA president on this win stated that this is the outcome of the CUNA-League system’s bold, tenacious lobbying, in which they effectively showed credit unions’ worth to their members and communities. The bill includes other key credit union elements – a remote notary and the SAFE (Secure And Fair Enforcement) Banking Act. The remote notary is an amendment that would legalize the use of remote access notarization while also establishing national rules and safeguards for financial organizations that utilize it. The SAFE Banking Act would put in place the essential safeguards to bring proceeds from state-sanctioned cannabis companies into the financial services mainstream.
9/23/21 Why do we need banks and branches? (The Finanser)
According to Chris Skinner, society, including him, has argued that everyone needs physical bank branches to execute digital or complex transactions for many years. However, after going through some facts, it appears that they all were wrong. Before the pandemic, 15% of the bank consumers had interacted with a bank executive over a video call. After the pandemic, nearly half of the consumers said that they would prefer this even when the branches re-open. Also, some big banks in Britain are closing more than 300 branches this year because a majority of their customers are applying for the mortgage via app or any other online medium. After witnessing such trends, it is suggested that society does need physical branches in order to keep the customers’ trust that their money is safe with someone physically present and regulated by the government. However, it is also true that we need a lot less of the bank branches than before.
It will be too early to imagine a traditional bank providing a platform for trading in cryptocurrencies. Right? But surprisingly, there is a family-owned bank in Oklahoma, which is offering its customers a service of creating and managing a crypto portfolio along with a traditional checking account. US-based Vast Bank claims to be the first federally chartered financial institution in the region to offer this type of service. The bank is offering this through its official mobile app, which currently allows its customers to trade in eight major cryptocurrencies, including Bitcoin, Etherium, Cardano, and some others. The institution is planning to add new currencies on its platforms as well.
This service was introduced by the bank a few weeks ago; however, the team has been working on this since the year 2016, when CEO Brad Scrivner started observing the potential of the blockchain use cases. However, the team claims that its target markets include those people who are not crypto-savvy but are eager to learn about digital assets and their utility. This is why it also believes that “Crypto isn’t just for the crypto-obsessed anymore.”
9/22/21 CUs Impacted by Consumers Deferring Purchases (Credit Union Times)
While used car balances and first mortgages have increased over the last year, new automobile balances have decreased. Consumers are deferring purchases due to pandemic induced uncertainty and that is showing across the board. According to the National Association of Realtors (NAR), new house sales decreased 2% from July to August to a seasonally adjusted annual rate (SAAR) of 5.88 million homes. It also reported that the sales of existing houses dipped in each of the four major U.S. regions from July to August and from August 2020. Long of NAFCU said that on the demand side, there are no concerns because mortgage rates remain low and the labor situation continues to improve. NAFCU anticipates that sales will stay stable until fresh supply arrives, while new construction is providing some sense of comfort. The Mortgage Bankers Association chief economist Mike Fratantoni said that the decrease in first-time home purchasers emphasizes the inventory constraints and rapidly rising housing prices that continue to impede potential buyers.
9/21/21 Amazon announces partnership with Lendistry for SMB lending (LendIt Fintech)
After being a long-time SMB lender toward its own seller network, Amazon has partnered with Lendistry to announce a new platform called Amazon Community Lending. It will be offering official short-term loans to Small and Medium-sized Businesses (SMBs) up to $100,000 through this new platform. According to Amazon’s VP for consumer trust and partner support, this service will be available within the US and will help small businesses to have access to critical working capital. As per the press release, through this new platform, Lendistry will offer term loans from $10,000 to $100,000 for a period of up to two years and at an annual interest rate of 8% to 9.9%. According to an industry expert, this is another incident signaling the growth of the SMB lending industry in the US.
9/21/21 Trouble in pay-radise: Surveys show rising BNPL default rates (LendIt Fintech)
After Buy Now Pay Later dominating the headlines in the US fintech sector with multiple acquisitions, fundraise and partnerships taking place, people are witnessing some not-so-impressive results in the industry. According to the results of the Credit Karma survey that took place at the end of 2020, around 40% of participants have used the BNPL service, of which 34% have missed 1 or more payments. Not only this, many respondents reported that their credit scores were adversely affected due to this. It was also found that the BNPL service appears more attractive to the lower-income respondents; however, in the majority of cases, users are hurting their credit scores. Research done by Survey Monkey also concluded that around 16% of respondents regretted the decision of using the BNPL service.
Due to an increasing trend in BNPL defaults, BNPL service providers are also incurring more losses. One such example is Klarna, where the operating loss increased by 11X in a single year. However, the CEO claimed that the company is happy with the loss development.
9/21/21 NCUA has asked credit unions to comment on crypto. So far, crickets. (American Banker)
In order to ensure that the ground rules are set for the use of digital assets, distributed ledger, and blockchain technology, credit unions regulators have asked the industry participants in July to comment on how they can use this technology to meet their business objectives, what are the hurdles in its implementation and what are the risks associated with its usage. The deadline for commenting on the Request for Information (RFI) was 27th September this year. However, so far, the response by the credit unions has been underwhelming. Some credit unions have also shown concerns about the potential security risks that came with the decentralized platforms, and some said that they don’t trust cryptocurrencies as there is a lack of official backing.
9/15/21 NCUA wants credit unions to get friendlier with fintechs (American Banker)
As credit unions place a greater emphasis on digital assets and Fintech, leaders at the National Credit Union Administration are striving to strengthen existing efforts and launch new ones. Part of that effort will be the establishment of an Office of Innovation and Access, which will allow the NCUA to better understand how fintech firms function. The office will assist the NCUA in collaborating with Fintech and navigating regulatory obligations. Rodney Hood, an NCUA member, hopes to develop a forum to encourage conversations between subject-matter experts and NCUA credit unions in order to acquire insights for use in decision-making. Hood also addressed progress in the NCUA’s ACCESS initiative, through which the agency endeavors to provide financing and opportunities to underserved communities to help move them into the economic mainstream.
9/15/21 The ‘Primary Financial Institution’ Concept Is Dead… Now What? (The Financial Brand)
Thanks to digital technology, consumers can choose different banks for different services, and the pandemic has further fueled it, thus invalidating the concept of The Primary Financial Institution. So, the question arises that is PPC (products sold per customer) still a viable strategy for full-service banking. Solarity Credit Union has realized the issues and has been upping its digital game. Also, to avoid a clash with big players like Chime, Solarity has shifted towards focusing on providing fewer products and enhancing its customer base through digitization. Thus, it has started strengthening the process of digitizing its services such as Direct to Customer home loans, multifamily homes, and checking accounts.
Solarity had earlier shifted to small tellerless branches; now, going further, the credit union is introducing digital payoffs (remote online notary & digital closing capabilities) using video sharing to accept signatures. But it has not abandoned the human interface completely; for advice and problem solving, financial guides can be called via their video conferencing stations. While advancing swiftly toward digital banking, Solarity has also provided capabilities to the people to engage with their staff. The dramatic shift towards digitization and lowering products has raised the question of whether the physical branches are even required anymore or not.
9/12/21 CFPB small-business data plan scares banks. Activists say it should. (American Banker)
The Consumer Financial Protection Bureau’s (CFPB) proposal to gather data on small-business loans has generated concerns that the review process would result in more fair-lending enforcement and public shaming of banks for claimed discrimination against minority-owned firms. As per the CFPB proposal, every bank or fintech lender that issues 25 or more small-business loans per year would be required to report data on the race, gender, and ethnicity of the primary business owners, as well as which applicants are denied credit. The proposal comes on the heels of banks and fintechs lending almost $800 billion to small businesses during the pandemic. However, in the midst of the Biden administration’s larger drive for racial fairness, CFPB Director has undertaken a tough stand on lending discrimination problems. Many bankers believe that small-business financing can help to alleviate economic inequality and systematic racism. But they think that data gathering might result in a lending freeze due to the high cost of compliance.